September 28, 2015 is the date that Canada Mortgage and Housing Corporation (CMHC) will start allowing 100% of rental incomes from legal secondary suites to be used when qualifying for a mortgage. Currently CMHC allows 50%.
The move is meant to “facilitate affordable housing choices for Canadians” according to CMHC, the nation’s largest default insurer. “Secondary rental suites are recognized as a source of affordable housing offered at a cost that is often lower than those for apartments in purpose built rental buildings,” it adds. Secondary/basement suites also give lower-income Canadians the chance to live in single-family residential neighbourhoods.
This is great news for everyone who is looking to buy a home and subsidize the cost with a renter. The opportunity to utilize 100% of rental income to qualify for mortgage financing will make the difference for many and may move a larger number of home buyers from condo purchases to a single-family home with the assistance of 100% of suite income.
Here is what will be required to use 100% of suite income with CMHC:
The property must be owner-occupied.- The property being insured can have only two units (i.e., a duplex or a single home with a legal secondary suite).
- Rental income cannot be used if the suite is “illegal/non-conforming” but “legal non-conforming” is okay. (Non-conforming means that the suite was grandfathered in before zoning/regulations restricted such units. You can check with the city to confirm if a suite is legal.)
- The suite must be self-contained with its own entrance.
- Property taxes and heat can be excluded when calculating borrower’s debt ratios.
- For existing units, there must be two-year history of rental income from the suite. The maximum rental income allowed for qualification is a two-year average of the unit’s rent.
- For new units, a market rent appraisal can be accepted if an appropriate vacancy rate has been applied to the estimated rental income.
- Mortgage applicants must “demonstrate a strong history of managing credit” with a minimum credit score of 680.
Be prepared! Individual lender guidelines may be tighter than those mentioned above. Are you ready to make your move? Want to learn more about suite income? Talk to Tracy Irwin.
Summer Vacation Highlights
The Icelandic Festival of Manitoba
Tracy and husband, Sid visited Gimli, Manitoba for this year’s Icelandic Festival and ran in the 47th Annual Islendingadagurinn (just try to pronounce that one!), a 10-mile Road Race from Winnipeg Beach Park to Gimli Park. Tracy said, “the wind was in our face the whole run but it was a beautiful day!”
Why Manitoba and the Icelandic Festival? Sid’s Mom was born in Iceland and he has many relatives in Gimli (which is called Little Iceland).
The Icelandic Festival is the second oldest continuous ethnic festival in North America. Skál!
